Mindray's net revenues increase 16.5% to $368.4 million in fourth quarter 2013

Mindray Medical International Limited ("Mindray", NYSE: MR), a leading developer, manufacturer and marketer of medical devices worldwide, announced today its selected unaudited financial results for the fourth quarter and full year ended December 31, 2013.

Highlights for Fourth Quarter and Full Year 2013

• Full year net revenues increased 14.5% year-over-year to $1.2 billion; excluding tax benefits, full year non-GAAP net income increased 11.8% to $236.6 million.
  • China net revenues rose 16.5% to $551.2 million for the full year.
  • Western European markets achieved more than 20% year-over-year net revenue growth; certain emerging markets also performed well delivering double-digit sales increase.
  • Reagent revenues continued to climb in the fourth quarter, contributing 41.4% to the IVD segment, up from 36.9% in the same period last year.
• Cash conversion cycle was 75 days in the fourth quarter, improved from 89 days a year ago and 91 days in the previous quarter, due to better control on receivable collection and inventory management.
• Introduced a total of 11 new products in 2013, including the first-generation chemiluminescence immunoassay product, the CL-2000i, along with several reagents.
• Announced two international acquisitions in 2013 to further strengthen the company's R&D capability and distribution channels.
• In the fourth quarter, Mindray's Shenzhen subsidiary was awarded the nationwide key software enterprise status for the 2013 and 2014 calendar years.
• Declared dividend of $0.50 per share.
• Launched a $200 million share repurchase program in November of 2013 and has bought back approximately $90 million of Mindray's American Depositary Shares so far. The company has also increased the size of this program to $300 million.

"2013 was another fruitful year of great accomplishments. We delivered double-digit sales and non-GAAP net income growth despite the challenging environments in some markets. Our strong growth in Western Europe and some emerging markets reflected the success of our investments in these regions over the last few years," commented Mr. Li Xiting, Mindray's President and Co-Chief Executive Officer. "In our IVD segment, we were happy with the reagent sales ramp-up. We also created new business opportunities by launching our first immunoassay product and acquiring Zonare to step up our high-end ultrasound capability. The continued dividend payout and the share repurchase program demonstrated our commitment to returning capital to our shareholders."

SUMMARY – Fourth Quarter and Year Ended December 31, 2013

Fourth Quarter 2013 Results

Net Revenues

Mindray reported net revenues of $368.4 million for the fourth quarter of 2013, a 16.5% increase from $316.1 million in the fourth quarter of 2012.

• Net revenues generated in China increased 8.3% to $160.4 million from $148.1 million in the fourth quarter of 2012.
• Net revenues generated in the international markets increased 23.8% to $208.0 million from $168.0 million in the fourth quarter of 2012.

Performance by Segment

Patient Monitoring and Life Support Products: Net revenues in this segment increased 5.7% to $142.8 million from $135.0 million in the fourth quarter of 2012, contributing 38.8% to the total net revenues in this quarter.

In-Vitro Diagnostic Products: Net revenues in this segment increased 15.7% to $95.9 million from $82.9 million in the fourth quarter of 2012, contributing 26.0% to the total net revenues in this quarter. Reagents sales represented 41.4% of this segment's net revenues.

Medical Imaging Systems: Net revenues in this segment increased 28.7% to $97.0 million from $75.4 million in the fourth quarter of 2012, contributing 26.3% to the total net revenues in this quarter.

Others: Other net revenues increased 43.3% to $32.7 million from $22.8 million in the fourth quarter of 2012, contributing 8.9% to the total net revenues in this quarter. Other net revenues mainly include sales from the orthopedics business, service revenues from extended warranties, sales of accessories and repair-service revenues for the post-warranty period.

Gross Profit

Fourth quarter 2013 gross profit was $205.9 million, a 12.7% increase from $182.8 million in the fourth quarter of 2012. Non-GAAP gross profit was $208.0 million, a 12.6% increase from $184.8 million in the fourth quarter of 2012. The gross margin was 55.9% compared to 57.8% in the fourth quarter of 2012 and 55.7% in the third quarter of 2013. Non-GAAP gross margin was 56.5% compared to 58.5% in the fourth quarter of 2012 and 56.4% in the third quarter of 2013.

Operating Expenses

Selling expenses for the fourth quarter of 2013 were $61.4 million, or 16.7% of the total net revenues, compared to 17.0% in the fourth quarter of 2012 and 19.4% in the third quarter of 2013. Non-GAAP selling expenses were $59.3 million, or 16.1% of the total net revenues, compared to 16.2% in the fourth quarter of 2012 and 18.3% in the third quarter of 2013.

General and administrative expenses for the fourth quarter of 2013 were $49.6 million, or 13.5% of the total net revenues, compared to 11.5% in the fourth quarter of 2012 and 8.6% in the third quarter of 2013. Non-GAAP general and administrative expenses were $33.6 million, or 9.1% of the total net revenues, compared to 11.4% in the fourth quarter of 2012 and 8.4% in the third quarter of 2013.

Research and development expenses for the fourth quarter of 2013 were $41.0 million, or 11.1% of the total net revenues, compared to 10.4% in the fourth quarter of 2012 and 10.7% in the third quarter of 2013. Non-GAAP research and development expenses were $39.4 million, or 10.7% of the total net revenues, compared to 10.1% in the fourth quarter of 2012 and 10.3% in the third quarter of 2013.

Total share-based compensation expenses for the fourth quarter of 2013, which were allocated to cost of goods sold and related operating expenses, were $3.8 million, compared to $2.7 million in the fourth quarter of 2012 and $2.9 million in the third quarter of 2013.

Operating Income

Operating income in the fourth quarter was $54.0 million, a 9.6% decrease from $59.7 million in the fourth quarter of 2012. Non-GAAP operating income was $75.8 million, a 15.1% increase from $65.8 million in the fourth quarter of 2012. Operating margin was 14.6% compared to 18.9% in the fourth quarter of 2012 and 17.1% in the third quarter of 2013. Non-GAAP operating margin was 20.6% compared to 20.8% in the fourth quarter of 2012 and 19.4% in the third quarter of 2013.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

Fourth quarter 2013 EBITDA decreased 3.3% to $69.5 million from $71.9 million in the fourth quarter of 2012.

Net Income

Fourth quarter 2013 net income increased 34.7% to $75.2 million from $55.8 million in the fourth quarter of 2012. Non-GAAP net income increased 19.8% to $73.9 million from $61.7 million in the fourth quarter of 2012. Net margin was 20.4%, compared to 17.7% in the fourth quarter of 2012 and 10.1% in the third quarter of 2013. Non-GAAP net margin was 20.0%, compared to 19.5% in the fourth quarter of 2012 and 19.4% in the third quarter of 2013. Fourth quarter 2013 income tax benefit was $11.5 million, compared to an income tax expense of $9.9 million in the fourth quarter of 2012.

Fourth quarter 2013 basic and diluted earnings per share were $0.64 and $0.63 respectively, compared to $0.48 and $0.47 respectively in the fourth quarter of 2012. Fourth quarter 2013 basic and diluted non-GAAP earnings per share were both $0.62, compared to $0.53 and $0.51 respectively in the fourth quarter of 2012. Shares used in the computation of diluted earnings per share for the fourth quarter of 2013 were approximately 120.0 million.

Other Selected Data

Accounts receivable turnover days were 50 days in the fourth quarter of 2013, improved from 53 days in the fourth quarter of 2012 and 56 days in the third quarter of 2013. Inventory turnover days were 79 days in the fourth quarter of 2013, improved from 83 days in the fourth quarter of 2012 and 94 days in the third quarter of 2013. Accounts payable turnover days were 54 days in the fourth quarter of 2013, compared to 47 days in the fourth quarter of 2012 and 59 days in the third quarter of 2013. Mindray calculates the above working capital days using the average of beginning and ending balances of the quarter.

As of December 31, 2013, the company had a total of $1.2 billion in cash and cash equivalents, and short-term investments as compared to $862.9 million as of December 31, 2012 and $1.0 billion as of September 30, 2013. Net cash generated from operating activities and net cash outflow for capital expenditures for the fourth quarter of 2013 were $122.2 million and $41.9 million respectively.

As of December 31, 2013 the company had more than 7,800 employees, including those from the acquired businesses.

Full Year 2013 Results

Mindray reported net revenues of $1.2 billion for the full year 2013, a 14.5% increase from $1.1 billion for the full year 2012.

• Net revenues generated in China for the full year 2013 increased 16.5% to $551.2 million from $473.0 million in 2012.
• Net revenues generated in the international markets for the full year 2013 increased 12.9% to $662.8 million from $587.1 million in 2012.

Full year 2013 EBITDA increased 12.7% to $262.9 million from $233.3 million in 2012.

Full year 2013 net income increased 24.7% to $224.8 million from $180.2 million in 2012. Non-GAAP net income increased 24.7% to $264.1 million from $211.7 million in 2012. Net margin was 18.5% compared to 17.0% in 2012. Non-GAAP net margin was 21.8% compared to 20.0% in 2012. Excluding tax benefits, non-GAAP net income increased 11.8% year-over-year to $236.6 million in 2013 and non-GAAP net margin was 19.5% in 2013. Full year 2013 income tax expense was $14.3 million, representing an effective tax rate of 5.8%, compared to 17.0% in 2012.

Diluted earnings per share increased 24.5% to $1.87 from $1.50 in 2012. Non-GAAP diluted earnings per share increased 24.5% to $2.20 from $1.77 in 2012.

Dividend Declaration

Mindray's board of directors has declared a cash dividend on its ordinary shares of $0.50 per share, based on the company's net income for the full year 2013. The cash dividend will be payable on or around April 8, 2014 to shareholders of record as of March 8, 2014. The company has approximately 119 million outstanding ordinary shares as of January 31, 2014.

Business Outlook for Full Year 2014

The company anticipates its full year 2014 net revenues to grow at least 15% over its full year 2013 net revenues. The company also expects its full year 2014 non-GAAP net income to remain at a similar level to its full year 2013 non-GAAP net income. This guidance excludes the tax benefits related to the nationwide key software enterprise status and assumes a corporate income tax rate of 15% applicable to the Shenzhen subsidiary.

The company expects its capital expenditure for 2014 to be around $160 million.

The company's practice is to provide guidance on a full year basis only. This forecast reflects Mindray's current and preliminary views, which are subject to change.

"Looking ahead, we forecast our top-line to grow at least 15% year-over-year. We anticipate Western Europe and some emerging countries to be the bright spots, and the market dynamics in China to gradually improve," commented Mr. Cheng Minghe, Mindray's Co-Chief Executive Officer and Chief Strategic Officer. "To support our future growth as a more global and diverse company, we plan to accelerate our investments on our sales, marketing and distribution capabilities as well as product innovation this year. We firmly believe that these investments are crucial to our corporate strategy and further strengthening our long-term competitive position. Furthermore, the increasing size of our share buyback program continues to highlight our confidence in Mindray's growth prospects."

SOURCE Mindray Medical International Limited